Natural-Gas Vehicles Will Run Best Without Subsidies

By the Editors -
Mar 29, 2012

Few areas of American governance
have been as incoherent in recent decades as energy policy,
which is saying something. But lately, we keep seeing reasons
for optimism.

Almost miraculously, the U.S. is both reducing its
greenhouse-gas emissions and becoming increasingly energy
independent. As Bloomberg News recently reported, the share of
U.S. energy demand met by domestic sources increased to 81
percent through the first 10 months of 2011 -- the highest level
in 20 years -- and emissions are expected to decline 12 percent
by 2020.

A major factor in both trends is increased use of natural
gas, a cleaner-burning fossil fuel now being extracted in
abundance across the country. Hydraulic fracturing, a new
production technology also known as fracking, has helped push
prices for the fuel to a decade low, and has created plenty of
jobs in the process.

Inevitably, a large lobbying effort has attached itself to
this booming business, advancing buoyant visions of an America
free of Middle East oil, cleansed of carbon pollution and
humming with new natural-gas-powered vehicles -- if only
Congress would provide a few billion in tax credits to get the
industry on its feet.

Natural gas has many advantages -- which is exactly why the
industry doesn’t need more government help.

Proponents of federal aid argue that the costs of switching
to natural gas on a large scale are prohibitive for trucking
companies and consumers. But as Bloomberg News has reported,
trucking companies are already buying more long-haul natural-gas
trucks simply because the fuel is so cheap. Annual savings over
diesel can add up to $20,000 for a single truck -- so a company
can recoup the extra cost of the new technology in about two
years.

On the consumer side, Chrysler Group LLC and General Motors
Co. recently announced that they plan to build pickups that use
compressed natural gas, joining Honda Motor Co., which sells a
version of the Civic that runs on the fuel.

To meet increased demand, companies are building
infrastructure on their own: Clean Energy Fuels Corp., which
provides natural gas fuel for transportation, plans to build 70
liquefied natural-gas stations by the end of the year. General
Electric Co. and Chesapeake Energy Corp. have formed an alliance
to help make compressed natural gas available at more filling
stations. Honda plans to install fueling stations at some of its
dealerships. Fleets of taxis, trucks and buses across the
country are using the fuel in growing numbers.

In other words, market forces are working. It’s not yet
clear what will be the most efficient means to get natural gas
to power vehicles -- many options are on the table -- but the
private sector is the best place to experiment. Billions of
dollars in government subsidies will only further distort the
energy sector, threaten to create another industry reliant on
Washington’s largesse and drive up prices by artificially
boosting demand. Such support could also crowd out promising
renewable energy sources.

Congress, which can rarely pass up too much of a good
thing, for the moment is showing restraint. On March 13,
legislation providing tax credits for natural gas -- backed by
billionaire investor T. Boone Pickens -- failed to pass the
Senate. A House version of the bill also looks unlikely to pass.

The issue will surely come up again. When it does, the
government’s role in encouraging natural gas should be modest.
Scrapping subsidies for oil companies would be a good first
step. On the supply side, the government should start minimizing
uncertainty about the future of fracking -- which poses real
environmental and safety concerns -- by drawing up a clear
regulatory plan to protect communities without unduly burdening
a promising industry.

President Barack Obama’s small-scale National Community
Deployment Challenge -- which would help a dozen or so
communities become “real-world laboratories” by funding
infrastructure for a variety of alternative-fuel vehicles -- is
on the right track. The government could conduct similar limited
experiments using parts of its own fleet of vehicles.

Otherwise, Washington should avoid undue meddling in the
natural-gas industry while continuing to support research and
development for renewables. The president is right to push an
“all of the above” strategy for U.S. energy use. That shouldn’t
mean taxpayer handouts for all of the above.